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The Press, March 2009

Walking past a Levis store last week a sign caught my eye. Instead of the ubiquitous “sale sale sale” sign, it was a sandwich board promoting the company’s premium 501 brand jeans. While seemingly every other retailer is screaming discount, they have the confidence of a strong brand and don’t feel the need to cut prices. It is a good lesson for any marketer.

According to a major United Kingdom study conducted by Millward Brown in 2007, only 10% of purchases decisions are made on price alone. 59% of goods were bought on the strength of the ‘brand’. Brand in this sense is not just the logos or colours used by a product, but what sort of reputation a product has in the customer’s mind.

MP3 players are a good example. Many players offer as much or more functionality and quality than the Apple iPod, typically at a lower price. But a large section of the market are not willing to trade the design aesthetic, the linkage with the iTunes software and the ‘cool’ factor of owning an iPod for a lower price.

It shows the immense value of a strong brand, particularly when customer’s wallets are getting thinner. A recent US study bears this out. The Brand Keys organisation polled 26,000 consumers of 441 brands in 63 categories earlier this year.

The study found consumer expectations regarding brand value actually went up 20 percent. That means as the recession bites customers actually value trusted brands more. They are more likely to purchase goods they associate with longevity and quality, rather than go for the quick deal.

The lesson from BrandKeys study is that it is worth investing in your brand to protect your price position in a downturn. Customers need to understand and trust what you have to offer.

Reducing prices seems an obvious approach in today’s buyer’s market. Lower prices could spark sales and grab market share off key competitors. But for these gains a company may sacrifice long term profitability. Reducing your price is easy enough, but the reverse is much harder to do effectively.

Going for a cut price strategy can also affect your brand. Positioning yourself as the lowest price offering can have real implications. If you’ve built your reputation on outstanding customer service or product innovation for example, that brand position will be eroded. Customers will start to wonder if you can maintain your standards if you are cutting margins tight.

“I was beaten on price,” is something I often hear from companies. “I was beaten by something that was perceived as better value,” would be a more accurate statement. A customer rarely buys on price, they make a decision based on the perceived value to them, particularly in large business-business type transactions. Customers typically balance things like product quality, support and price before deciding. A customer won’t select the lowest price if they have to trade off too many other elements.

Trying to compete on price is unsustainable for most Kiwi exporters at the best of times, let alone now. We are too small to go into price battles with large competitors. Competitors from low cost economies will always win a price battle. To be sustainable, our brands must be positioned on other values such as service quality, innovation or quality.

The challenge is to better sell the value of what you offer, rather than resorting to price reductions. The more you understand your customer’s problems, the better you can ensure your product is the most appropriate solution. It is better still if you can establish a quantifiable financial impact, and sell them on that.

Rather than cutting prices and trimming costs it is potentially a great time to gain market share. While competitors may pull back on marketing spend, there is an opportunity to increase yours and gain a large share of the customer’s mindshare.

If you do cut back, the impact won’t necessarily be felt straight away. Studies show there can be quite a time lag between easing off on promotional activity and a drop in sales. By the time you respond it can be too late to regain lost business.

“If your turn off the engines of a plane flying at 36,000 feet, it does not drop out of the sky. Indeed, as far as the pilot and passengers are concerned, life continues as normal with the plane only very gradually losing altitude. It’s exactly the same with brands,” says Moray Maclennan, Chairman of M&C Saatchi Europe.

While competitors in your market are losing altitude, you could be flying. According to the Economist magazine, the famous Kelloggs cereal company increased their marketing spend in the Great Depression of the 1920s and managed to pull away from their rivals, a position that hasn’t been challenged since.

Of course all of this takes confidence, something in short supply in today’s economy. But not resorting to putting the “sale sale sale” sign out could put you in a much stronger position when tomorrow comes.